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Risks facing Vietnam’s economy in second year of Covid pandemic

Risks facing Vietnam’s economy in second year of Covid pandemic

Thursday 25, 02 2021
The ASEAN+3 Macroeconomic Research Office (AMRO) predicted that Vietnam's economic growth may recover at 7% in 2021, but the economy will still face many risks and challenges.

Many risks and challenges

In a report assessing Vietnam's recent economic prospects and developments, the ASEAN+3 Macroeconomic Research Office (AMRO) stated: "Vietnam's economic growth slowed down to 2.9% in 2020 due to the pandemic, but it is expected to increase to 7% in 2021. This recovery is the results of external demands, domestic growth, FDI inflows and increased production capacity.” Seung Hyun Luke Hong, representative of AMRO's financial expert group, said.

Many risks and challenges

However, Vietnam's economy will still face many risks and challenges in 2021. The prolonged and uneven recovery of the global economy could jeopardize the recovery of global demand. 

Furthermore, the negative impacts of the pandemic, such as a weakening of corporate cash flows and high unemployment rate, can hinder recovery.

Regarding the financial matter, AMRO experts said that Vietnam will also face the risk of declining asset quality of the banking system, which many “erode” the existing relatively thin capital buffer. Problems can also arise from the consumer lending segment, and from an increase in banks' corporate bond holdings. In addition, policy uncertainties in major economies can cause chaos in asset prices and capital flows.

Appropriate supporting policies 

AMRO believed that in the context of uncertainty, the continuation of supporting policies is essential to promote economic recovery and facilitate a transition to a post-pandemic mode.

AMRO also recommended that certain support policies for micro, small and medium enterprises and low-income households still need to be continued, and evaluated for suitability and effectiveness on a regular basis. Simplifying disbursement and better targeting will increase the efficiency of government funds.

Appropriate supporting policies

At the same time, with stable inflation prospect, it is necessary to continue monetary policy to support economic recovery, and to keep financial costs at a reasonable level for households and businesses. With more suitable financial conditions, increased supervision of lending to risky fields still needs to be ensured to minimize the risk of asset bubbles. In addition, strengthening supervision in the finance and banking sector is also very important to protect the quality of bank credit in the future.

With much uncertainty in the post-pandemic global economic recovery, external economic activity needs to be continued and supported with greater flexibility in exchange rates.

Finally, the Government must ensure continued support for long-term development issues such as infrastructure development, human resource development, social safety, public health, and carefully manage risks to long-term fiscal sustainability.

Source: cafef

 
 

Categories
Vietnam Economy

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